Local hospitals join fight against Malloy budget plan they say will hurt them

The region's two hospitals have joined with the Connecticut Hospital Association in pushing hard against the portions of Gov. Dannel P. Malloy's budget proposal they say would have a devastating effect on their operations, and are encouraged that sympathy seems to be growing among state legislators who've heard their pitch.

"We're educating them, and they're beginning to recognize these cuts are very, very deep," David Whitehead, president and chief executive officer of The William W. Backus Hospital in Norwich, said Monday.

Whitehead joined William Stanley, vice president for development and community relations at Lawrence & Memorial Hospital in New London, Dr. Oliver Mayorga, chairman of emergency services at L+M, and two leaders of the hospital association in a meeting with The Day's editorial board. Since the governor unveiled his budget last month, hospitals around the state and the association have been meeting with lawmakers and testifying at legislative hearings to explain how the state's 30 hospitals stand to lose a total of $548 million in state funding by 2015. That amount, they say, would force them to lay off hundreds of workers, cut programs and increase wait times at emergency rooms, among other effects. Particularly vulnerable would be programs that currently run at a deficit, including psychiatric services, but are now seen as more critical than ever, hospital officials said. Malloy's budget, they said, would exact a disproportionately large impact on hospitals compared to other areas, in effect using hospital cuts to close about more than one-quarter of the state budget gap.

"I don't think there's any other sector that will see the same impact," said Stanley.

L+M would lose $18.5 million - about 5 percent of its annual revenues - under the governor's budget proposal, while Backus would lose $20 million - about 6.5 percent of its annual revenues.

In response to the hospitals' objections, Gian-Carl Casa, spokesman for the state Office of Policy and Management, said that under the governor's budget, hospitals would still receive $1.7 billion in state funding from Medicaid reimbursements and other sources. He added that hospitals are also in line to receive increased income from private insurance as the Affordable Care Act moves more state residents now covered by Medicaid into the private insurance pool, where reimbursement rates are higher. The act will also reduce the number of uninsured state residents from about 10 percent to 2 percent, he said, so hospitals will rely less on the state reimbursement for uncompensated care.

Hospitals, however, are skeptical of the calculations about the impact of the Affordable Care Act. In addition, they strongly object to one of the mechanisms the governor's budget would use. A hospital tax, originally enacted as a complicated means of leveraging additional federal dollars and then returning the tax funds back to the hospitals, has been turned into a true tax on hospital revenues, hospital officials said. They provided a chart showing that in 2012, hospitals paid about $350 million in taxes to the state and received $400.3 million back. But starting in 2013, the ratio shifts, so that hospitals would get $26.6 million less than they pay in the tax in 2013, and by 2015, would get back just $81.5 million after paying the same $350 million, for a net tax of $268.5 million.

"We're quite alarmed about this tax," said Stephen Frayne, senior vice president for health policy at the state hospital association. "The effective tax rate would be 55 percent of all hospitals' net income, versus the corporate tax rate of nine percent."

State Rep. Betsy Ritter, D-Waterford, is a member of the Appropriations Committee and heard the testimony of all 30 hospitals at a recent hearing. She said she is "not unsympathetic" to the hospitals' case, but is still gathering information.

"I want to understand the whole package of money that goes to the hospitals," she said. "But this whole thing is very concerning to me. I've talked to the governor's people, and I've talked to the hospital people, and I never get the entire picture."

State Sen. Terry Gerratana, D-New Britain, and state Rep. Susan Johnson, D-Windham, are co-chairwomen of the Public Health Committee, and Gerratana also heads the Appropriations' Committee's Health and Hospitals Subcommittee. Both said they expect the governor's proposal will be revised and that there is support for softening the impacts on hospitals.

"The cuts are very drastic," said Gerrantana. "We need to really look at this."